With the first consignment of goods under the Indian-UAE Comprehensive Economic Partnership Agreement (CEPA) flagged off on 1 May 2022 -- following the trade agreement becoming effective - it won’t be business as usual for India and its industry as large avenues open up to scale up exports, become more competitive in the international market and get connected to global value chains as well as a market of 10 million people in the UAE.
The entry into force of the CEPA effectively opens up for India preferential market access provided by the UAE on over 97 per cent of its tariff lines which account for 90 per cent of Indian exports to the UAE in value terms.
There is now immediate market access at zero duty covering labour-intensive sectors such as textiles, engineering products, gems and jewellery, pharmaceuticals and medical devices, plastics, automobiles, leather and footwear, agricultural products, furniture, wood products and sports goods.
Going ahead, there will be zero duty within five to 10 years on additional 9 per cent of India’s trade value for electronic goods, chemicals and petrochemicals, articles of stone, cement, ceramics and machinery. For the country at large, the CEPA with UAE offers opportunity for exponential growth in value of bilateral trade in goods to over $100 billion from the current $60 billion in the next five years.
The trade deal with UAE also comes opportunely for India with a track record of $670 billion of exports (goods and service), constituting 22-23 per cent of the GDP, set during the last fiscal year. With the world looking to India as a reliable partner, the CEPA with UAE positions India favourably as it negotiates FTAs with the UK, Canada and EU.
With the deal in place, India is expecting to gain in terms of expanded footprint for its goods and UAE as gateway to the world will open doors to significant markets for the rest of the Middle East, some parts of Africa and Europe.
“The FTA will result in exponential growth in India's exports to UAE and also will open the market to other Gulf Cooperation Council countries as GCC nations also follow the same technical standards as applicable to UAE paving the way for greater market access to Indian goods in GCC market,” points out A Sakthivel, President of the Federation of Indian Export Organisations.
“This may be used as a template for similar agreements with the GCC countries,” he added.
According to the FIEO chief, as UAE is also a re-distribution centre and a financial hub, much of exports to Africa is routed through Dubai. The signing of FTA will encourage setting up of warehousing/distribution centres in the UAE for exports to Africa.
“Lot of African buyers come to Dubai and place orders from there itself and thus showcasing Indian goods in UAE will be a very good strategy for marketing our products and services in the African continent,” says Sakthivel.
Ministry of Commerce Secretary, BVR Subrahmanyam opines that though the India-UAE agreement envisions a target of $100 billion worth of trade, there is room for much more given the size of India's market and the access that UAE would give to India. The story has just started with the first consignment of goods comprising jewellery products to the UAE carrying zero customs duty under this agreement.
The gems and jewellery sector which contributes a substantial portion of India’s exports to the UAE is looking to benefit significantly from the tariff concessions under the CEPA by pushing exports of plain gold jewellery and gold studded jewellery worth $10 billion by 2023.
India’s textiles sector can use the CEPA to get an additional increase in exports to worth $2 billion over the next five years and duty free exports for man-made fibre textiles to the tune of $650 million/year over the next five years. With duty free tariffs, India can cater to the need in the UAE for home textiles like bed and bath linen as well as contract textiles like beach towels, salon and spa linen.
India’s engineering exports to UAE recorded a sizable 77 per cent rise to $4.2 billion during April-December 2021-22 from $2.4 billion in the same period last fiscal. The growth of engineering exports to UAE is expected to be at 10 per cent in the first two years and 15 per cent in the next three years of the CEPA coming into force. Exports of engineering goods are projected at $7 billion, $8 billion and $9.2 billion for the year 2024-25, 2025-26 and 2026-27 respectively.
The pharmaceuticals and medical devices sector is also lined up for huge gains under the CEPA with exports to UAE in FY 2017-2021 growing at a CAGR of 24 per cent which is faster than UAE’s local market. India is well placed to tap UAE’s plans to become a global regional distribution hub of pharmaceuticals by 2030 as well as a global logistical centre with technically advanced transport and storage facilities that can distribute pharmaceuticals on a global scale.
An annex on pharmaceuticals has also been incorporated to facilitate access of Indian pharmaceuticals products, especially automatic registration and marketing authorisation of Indian generic medicines in 90 days. All this will greatly benefit India. Plastics will get preferential access to the UAE market which will induce additional increase in exports projected at $872 million in the short term and another $402 million in the long term.
As regards trade in services, the CEPA offers Indian service providers enhanced access to around 111 sub-sectors from the 11 broad service sectors. The UAE has high dependence on India for skilled IT professionals and services and this is well complimented by the CEPA which has provisions for mutual recognition of professional and skilled services enabling jobs in education, health, travel and tourism, professional services in nursing, engineering, accounting, etc.
The CEPA will also facilitate investment through sovereign funds of the UAE in various facets of infrastructure as well as in some of the sectors identified under the PLI Scheme and UAE companies will be encouraged to produce in India and cater to both Indian and UAE markets with duty free access now, said Sakthivel.
Indian startups under the CEPA can access new customers, networks and launchpads to scale at speed which is especially beneficial as both India and the UAE are home to competitive and complementary startup ecosystems and India’s entrepreneurial talent can tap opportunities in Abu Dhabi and Dubai.
India saw significant response from the Dubai Expo where its startups got the opportunity to raise finances, sign MoUs and get angel investments. The promotion of Indian startups by the India Innovation Hub platform at the Expo saw 700 startups showcasing their innovation and India is looking at this initiative with UAE on innovation and future technologies to power growth of businesses.
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